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Rating Action:

Moody's concludes review and confirms LafargeHolcim's issuer rating at Baa2; negative outlook

10 Mar 2017

Frankfurt am Main, March 10, 2017 -- Moody's Investors Service has confirmed at Baa2 the long-term issuer and senior unsecured ratings of LafargeHolcim Ltd. Concurrently, the agency confirmed the short-term P-2 issuer rating of LafargeHolcim Ltd. The outlook on all ratings is negative. Today's action concludes the review process initiated on 21 November 2016.

"Our decision to confirm LafargeHolcim's ratings mainly factors in the significant progress it has made towards deleveraging in the second half of 2016, as well as the potential for operating performance improvements in 2017 on the back of rising cement prices and in spite of higher costs and the negative knock-on effects of last year's asset sales," says Stanislas Duquesnoy, a Moody's Vice President - Senior Credit Officer.

A full list of affected ratings/entities is included at the end of this press release.

RATINGS RATIONALE

Today's confirmation of LafargeHolcim's Baa2 issuer rating reflects the group's strong operating performance in H2 2016, the associated robust deleveraging path and a sound outlook for 2017 despite some material headwinds, in particular from expected cost inflation.

LafargeHolcim posted a solid operating performance in Q4 2016 and confirmed the group's positive earnings momentum. The company's adjusted operating EBITDA rose more than 30% like-for-like in Q4 2016 whilst Moody's adjusted EBITDA almost doubled to slightly above CHF1.2 billion. Moody's highlights the strong price momentum in Q4 2016 (+5% y-o-y for cement prices and CHF288 million positive EBITDA contribution from price increases) as a very positive factor going into 2017 also in light of a favourable comparison basis in H1 2017.

LafargeHolcim's solid operating performance in H2 2016 led to a swift deleveraging path with Debt/EBITDA dropping almost two turns in the second half (approximately one turn reduction each quarter) to 4.1x, a level much closer to the rating agency's downgrade trigger of 3.5x. Moody's also notes that LafargeHolcim has more than CHF2.1 billion of debt maturities this year, which should bring down its adjusted gross debt. The group's retained cash flow (RCF)/net debt also improved materially to 20.4% at year-end 2016 from 10.5% as per the 12-month period ending December 2015 (proforma) although LafargeHolcim's benefits from cash proceeds from asset disposals whilst the sold assets still contributed to retained cash flow for a large part of the year. Beyond the headwinds on operating profitability, LafargeHolcim's retained cash flow will also be negatively affected by an increase in dividends in 2017. As such, Moody's expects only a very modest improvement of this ratio if at all in 2017, although we take comfort from the newly communicated FY 2017 guidance of net financial debt / adjusted operating EBITDA (as reported by the company) of around 2.0x.

LafargeHolcim presented a solid 2017 outlook during its Q4 earnings call, forecasting double-digit like-for-like adjusted operating EBITDA growth despite headwinds from higher energy costs (CHF300 million negative impact) and general cost inflation of around 3% (more than CHF600 million EBITDA headwind). The rating agency's base case underpinning today's confirmation of the ratings foresees slightly more moderate growth with a like-for-like adjusted operating EBITDA in the mid-single digits.

RATIONALE FOR THE NEGATIVE OUTLOOK

The negative outlook on the ratings reflects (1) credit metrics, which still remain weak for the current rating as illustrated above, and (2) some material headwinds going into 2017 (scope effect: CHF330 million negative EBITDA impact, energy: CHF300 million negative impact, general cost inflation: more than CHF600 million negative impact as estimated by Moody's,), which will make it more difficult to de-lever going forward.

LIQUIDITY

Moody's regards LafargeHolcim's liquidity profile as very good. At 31 December 2016, the group's liquidity position consisted of CHF4.9 billion available cash & cash equivalents and CHF6.3 billion availability under committed credit lines with no financial covenants. Moody's notes, however, that a portion of the group's cash balance is not immediately available as it is constrained in fully consolidated but not fully owned subsidiaries or in countries with limitations on the transfer of foreign currency (e.g., China or Egypt). Even excluding that effect, LafargeHolcim's cash sources together with its funds from operations and the expected cash inflows resulting from the asset disposals should be more than sufficient to cover cash outflows such as debt repayments, capex, working capital changes and dividends during the next 12 months.

WHAT COULD CHANGE THE RATING UP/DOWN

Positive rating pressure is not anticipated in the short term. Longer term the rating could be upgraded if retained cash flow/net debt were to reach at least 25% and debt/EBITDA were to drop to below 3.0x on a sustainable basis.

The current rating would come under pressure if LafargeHolcim failed to achieve retained cash flow/net debt of at least 20% on a sustainable basis and to reduce leverage to below 3.5x by year-end 2017.

LIST OF AFFECTED RATINGS

Confirmations:

..Issuer: LafargeHolcim Ltd

.... Issuer Rating, Confirmed at P-2

.... Issuer Rating, Confirmed at Baa2

....Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: Holcim Capital Corporation Ltd.

....Backed Senior Unsecured Commercial Paper, Confirmed at P-2

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: Holcim Finance (Australia) Pty Ltd

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: Holcim Finance (Belgium) S.A.

....Backed Senior Unsecured Commercial Paper, Confirmed at P-2

..Issuer: Holcim Finance (Luxembourg) S.A.

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: Holcim GB Finance Ltd.

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: Holcim Overseas Finance Ltd.

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: Holcim US Finance S.a r.l. & Cie S.C.S.

....Backed Senior Unsecured Commercial Paper, Confirmed at P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: Lafarge SA

....Senior Unsecured Bank Credit Facility, Confirmed at Baa2

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: LafargeHolcim Albion Finance Ltd

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

..Issuer: LafargeHolcim Continental Finance Ltd

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

..Issuer: LafargeHolcim Finance US LLC

....Backed Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: LafargeHolcim International Finance Ltd

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

..Issuer: LafargeHolcim Sterling Finance (Netherlands)

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, Confirmed at (P)Baa2

Outlook Actions:

..Issuer: LafargeHolcim Ltd

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Holcim Capital Corporation Ltd.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Holcim Finance (Australia) Pty Ltd

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Holcim Finance (Luxembourg) S.A.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Holcim GB Finance Ltd.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Holcim Overseas Finance Ltd.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Holcim US Finance S.a r.l. & Cie S.C.S.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: Lafarge SA

....Outlook, Changed To Negative From Rating Under Review

..Issuer: LafargeHolcim Finance US LLC

....Outlook, Changed To Negative From Rating Under Review

The principal methodology used in these ratings was Building Materials Industry published in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stanislas Duquesnoy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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